2. Mastering Emotions

Rules for Identifying Trades

The rules for identifying trades are useful for keeping traders on track and focused on those areas where their knowledge and experience gives them an advantage.

These rules are particularly useful when it comes to controlling for greed and the fear of missing out, as it keeps traders in a safe area that they understand instead of chasing profits in asset classes that are alien to them.

It’s weird to say, but you need to be like a robot when trading. You have to be systematic and rely on your trading process and rules to be your guidelines for success.

Rules for Executing Trades

The actual opening and closing of positions is always the most difficult and stressful aspect of trading. Even the most well-researched trades can go poorly if the trader is overly emotional when executing trades.

Having a set of strict rules for how and when to execute trades is essential to maximizing the profits from good ideas and minimizing the losses from trades gone wrong.

An extensive use of advanced orders, such as profit-takers and stop orders, is an important element of a strong trade execution system.

When I first started trading, if I broke any of my rules I would have to stop trading for the day and make myself review my trading process. Eventually I broke my rules less and my trading improved.

Now every once and a while I will break a rule but I have the experience and know-how to correct it and get back on track.

Rules After You Trade

Whether you just met your weekly profit target in one trade or wiped out two day’s worth of work, it is always wise to have a system for cooling down after one trade before moving on to the next.

Every trade will color your emotional state, so the best traders know how to cleanse themselves of the lingering emotions of the last trade before moving on to the next one.

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